Once Upon a Time in fields of green there was a house. A cute couple with 2.5 kids enjoyed their life there and frolicked. On September the lawn was mowed and the sweet smell of grassed lingered in the air as a cold wind began to blow and blow …
By October the Bermuda grass started to go dormant for the winter. Everything was different and one day Dad came home with bad news. Business had changed, money was harder to find, and the widget factory was going to furlough workers. Presents were sparse under the tree that year, but the holidays did not diminish the importance of the season. Times were tight and brown bag lunches were the new special du jour. Spring arrived, but there was no sign of green grass. The Bermuda grass always turned green. Was it the unusually cold winter, global climate change, or the termination of the fertilizing company? Had the grass died? Was this a cruel April fool’s joke? This just was not normal.
The grass will green once again. Many things have changed, but the laws of nature and physics still seem to apply quite nicely. However, this cruel winter and the brutal business climate seems to inflate that what has gone up comes back down rather hard and make somewhat of a mess when it lands. We have written many times about short sales. Let’s given two examples of deals closed this January.
Charming Springlake Home was once upon a time worth $700,000 to $800,000:
The Seller defaults on about $680,000 of debt.
The Seller accepted an offer from an investor and short sale negotiator.
The Lenders approve the short sale with a total payoff of $481,155.51
The property sold for $500,000 from the owner in default to investor at 3 pm.
Investor sells the property at 4 pm the same day for $570,000. Investor paid commissions.
Big Buckhead House on a hill was once upon a time worth $2.5 million to $2.75 million:
The Seller defaults on $1,850,000 of debt.
The Seller accepted an offer from an investor and short sale negotiator.
The first place lenders approved the short sale a payoff of $1,094,400. There was also another lien holder for building materials.
The property sold for $1,150,000 from the owner in default to investor at 10 am.
Investor sells the property at 11 am the same day for $1,325,000. Investor paid commissions.
Under the current IRS rules and in accordance with form 1099-C, the Seller of the Springlake home should not have any tax liability for the debt forgiveness. On the other hand, with the bigger new home sold by a developer, there will likely by some tax liability realized as ordinary income. This taxable income will be the difference between the full payoff and the short sale payoff.
The wind blows very cold these days on the court house steps. If you doubt the importance of an effective short sale process, go to your superior courts steps on the first Tuesday of a month. In Georgia particularly, this foreclosure process is a ministerial process which reshuffles ownership and defers the extent or the problem. Further, with so many of Georgia’s 313 banks on the FDIC watch list, the reconciliation of the foreclosure problem is very growing, not shrinking. Short sale is not the only solution, but it needs to be a more prominent solution. It might be the only solution that mitigates the downside sufficiently for the Lenders and defaulted Sellers and yield dramatic upside the Buyers.
The grass greens every year - especially in Georgia. Our state desperately needs banking reform, just as our country needs banking reform. While this is debated, Heery Brothers will rise to meet the distressed property problem through deploying effective short sale solutions.